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Time to Trade Crocs for Deckers?

Is it time to trade in your Crocs (NASDAQ: CROX) for a better pair of shoes? Say, Deckers (NASDAQ: DECK)? Or Skechers (NYSE: SKX)? (Well..maybe not Skechers)

Shares of Crocs fell almost 10 percent Wednesday on company reports that it suffered a difficult holiday season. Deckers finished down 5.5 percent, and Skechers closed down only 0.3 percent.

Crocs problems are not confined to poor holiday sales alone. Weak international demand is pulling down domestic sales. In an SEC filing, the company said that its new products were “well accepted in most markets”—not exactly a choice of words that will get investors excited.

The story for Crocs' competitors isn't all sneakers and shoelaces either. Cost issues, especially with raw materials, have affected Decker's bottom line and Skechers had a per-share loss last year that has analysts concerned about growth in the coming months.

For Crocs, despite lackluster holiday sales and other analyst concerns, the company has a positive story to tell. The company sells roughly 48 million pairs of shoes per year. Almost 80 percent of manufacturing is outsourced, much of it to China and all of it in low-cost countries.

As a result, Crocs cost roughly $9 per unit to manufacture, with an average selling price around $22 making margins nearly 13 percent—slightly higher than Deckers.

The company has a multichannel distribution network that includes wholesale, the Internet, and company operated stores and outlets, which account for 38 percent of sales.

The wholesale channel provides 52 percent of revenue, with web-based sales amounting to 9 percent. The company earns 50 percent incremental EBITDA margins through the wholesale channel, and approximately 70-75 percent margins through its operated retail stores.

Jim Duffy of Stifel Nicolaus said on MSNBC that Crocs did not provide an update to its fourth-quarter earnings outlook, which calls for breakeven results.

This is similar to last year, Duffy reported, but when quarterly earnings for the prior year finally did come out, they were above guidance. The analyst says the stock is undervalued and rated it a "Buy" with a $20 price target.

Technically, Crocs is up 18 percent from its 52 week low and although the longer trend shows a descending channel pattern, since November, the stock has rallied. Prior to Wednesday's epic fall, the stock was close to breaking out of the longer term descending channel. Yesterday's fall didn't break the 50-day moving average. This may give traders reason to not dump the stock entirely.